In this conversational interview, family law attorney and mediator Scott Levin talks with certified divorce financial analyst Tanya Arae about the complexities that arise when a divorcing couple owns a business. They explain that a proper business valuation is essential, especially when the business’s value depends on both spouses’ involvement. Income from the business must be accurately characterized—distinguishing W‑2 wages, owner draws, K‑1 distributions, and personal expenses run through the company—to determine true support obligations. They discuss the need for forensic accounting and multi‑year tax review to uncover discrepancies between reported income and lifestyle. Despite these challenges, they argue that mediation remains a viable and cost‑effective path, allowing parties to engage the right professionals (attorneys, forensic accountants, mediators) and avoid the high costs of litigation, which can balloon from $10‑20K to $100‑200K. The interview concludes with a call to action for viewers to contact the speakers for guidance.
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Hey all, this is Scott Levin. I am a family law attorney, mediator, and CDFA in California. I'm joined today by Tanya Arae. Hi Tanya, how are you?
Hi Scott, great. How are you?
Good. Tanya is also a certified divorce financial analyst, and we work together a lot, uh, training clients, helping people through the process to make informed decisions. One of the things that comes up Quite often in our practices is the issue of dividing a business during a divorce, and kind of how that works, and how does that impact things, and whether that means, can mediation be possible when one person owns a business? Well, the answer is certainly yes, but there are unique things that become an issue when a business is owned and a divorce is going to happen. So I thought Tanya could maybe give us some of her thoughts on that issue, and we'll just kind of talk for a minute. So, Tanya, one party owns it. They both own a business, but they're getting divorced. Presumably, one person, usually more often, is going to continue to operate that business in some way. What are some of the issues that you think that that presents?
So whenever there's a business involved, there's so many different permutations, right? So if both parties own the business and one is going to keep the business and one is going to say, okay, you can have the business, depending on the type of business, first we're going to have to talk about a business valuation. What is the business worth as an asset? Is it worth the fight? Right? Because if the business doesn't function without the 2 of them functioning together, then there's no income to split. There's no asset Asset value to split. However, if that business is the primary income for both people, right, there is obviously some sort of value, and then it becomes an issue of support. How does that work? Right? Because this income is supporting both of them. It gets complicated because when we look at support coming in from income, available support from businesses, More often than not, people tend to run some of their own personal expenses through the business, and they'll pay themselves a W-2 just where, you know, it's probably very tax advantageous. But then that's not actually what they're living off of, right? They're taking owner draws or K-1s in different places at different times.
Their health insurance is being paid for by the company, their cars, their Possibly vacation. They're getting rent back from their home. All sorts of things come into play.
So in order to figure out how much income is actually available for support, we need to add back all of that income. The personal income that's going through the business needs to come back onto the table and say, all right, this is what actually the business is making, right? And then we can look at the roles as to who's doing what. Is one more active than the other? Usually what I see is one person owns a business, and then the other one owns— is a W-2 employee, which is a little bit easier to manage, because at least we know the W-2 income is W-2 income, right? But then we're looking only at one person making most of their income from their business. We do all the add-backs, and then we need to look at exactly how much monthly families are living off of, right? Because the numbers Can be very skewed.
It happens all the time when, you know, someone buys, you know, $200,000 car, but they're claiming they're making $13,000 a month. And it's like, well, how— it doesn't seem like that necessarily meshes.
Right. And when the discrepancy is like that, definitely we need a good business evaluation. But we also probably want to engage someone that's willing to go through all the statements. Go through all the taxes, maybe for a 3-year period to really determine where this money is coming from. Right? Because the statements will show the cash that's coming in or the cash that's going out.
Yeah. The bottom line, though, too, just because I know we might be sounding scary because this, you know, family law is a complicated world. It's a lot. It's a combination of legal issues, emotional issues, because it's the division of a family with real people and possibly kids. And extended family and relationships that go back years, if not decades. And math, you know, there's businesses, there's finances, there's assets, there's debts, there's income, there's expenses, there's tax liability, there's all sorts of things that come into play. So these are complicated things, but that does not, from my perspective, someone that helps people mediate, that doesn't mean that you can't navigate this process through mediation while engaging the right people that a mediator can help connect you with to still amicably and collaboratively move through the process in a way that allows you to save time, save money, preserve your wealth and your mental health. But these are complicated things that really need professionals to address most of the time.
I agree. I think you can do this through mediation easily. It's just everybody wants it or needs to want it to work this way, right? Otherwise, once we turn— once we involve the attorneys and the forensic accountants and all of the people, this divorce that may have cost all of $10,000 to $20,000 tops is costing $100,000 to $200,000.
Yeah.
Right.
Well, to learn more, you can contact Tanya and I and And, and if you have a business and you're, and you're, you know, navigating this or beginning this process, you know, it's all about finding the right people with the right skills. 2 of them are here. And, you know, we look forward to talking with you all in the future.
